What you need to know: changes to company size thresholds

Peter Herbert, BSc FCA, Croner-i

Peter Herbert FCA sets out key considerations for businesses planning for changes in company size thresholds and implications for accounting year ends

The uplift in company size thresholds has been driven by an attempt to cut complexity and reduce the reporting burden on companies. The Companies (Accounts and Reports) Regulations 2024 (SI 2024/1303) has also taken into account the impact of inflation since the last threshold change in 2013.

Current thresholds

The current micro, small and medium-sized company limits are as follows:

	Turnover £ (Group gross £)	Total Assets £ (Group gross £)	Number of employees
Micro entities	632k	316k	10
Small	10.2m (12.2m)	5.1m (6.1m)	50
Medium	36.0m	18.0m (21.6m)	250

For each size limit, the company must fall below two out of the three thresholds to qualify. The ‘two-year rule’ means that a company must fall into a new category for two consecutive years in order to qualify.

In determining whether a group is small or medium, there are ‘gross thresholds’ which are 20% higher than the ‘net’ thresholds for turnover and total assets.

The gross thresholds are before consolidation eliminations; the net thresholds are after consolidation eliminations.

Medium-sized groups need consolidated accounts; small groups don’t. It is possible to ‘mix and match’ the net and gross thresholds in order determine the status of a group.

Changes to thresholds

The threshold changes apply to financial years beginning on or after 6 April 2025. The date that the financial statements are approved by the board or the date that any audit or accountant’s report is signed is not relevant.

As a result of the substantial increases, it is anticipated that 113,000 small companies will become micro-sized and 14,000 medium-sized companies will become small.

	Micro	Micro	Small	Small	Medium	Medium
	OLD	NEW	OLD	NEW	OLD	NEW
Turnover	£632k	£1m	£10.2m	£15m	£36m	£54m
Gross assets	£316k	£500k	£5.1m	£7.5m	£18m	£27m

The above limits are also the net thresholds from a group perspective with the gross thresholds being 120% of the net as was the case previously.

The two-year rule and the application of the limits in a company’s or limited liability partnership’s (LLP) first year are also unchanged.

Audit exemption thresholds increase in line with the new limits.

Practical points

The date the accounting period commences is the date that determines when the new thresholds can be applied.

A company is able to extend its year end to 30 April 2025 so that the year end 30 April 2026 would fall under the new company limit rules, provided the accounting reference date has not been extended n the previous five years.

In addition, because financial statements accounts can be prepared to any date seven days either side of the accounting reference date this would enable a company with a 31 March year end to take advantage of the new thresholds earlier.

For an accounting period commencing on or after 6 April 2025, the new thresholds are treated as having always been the thresholds that applied.

This means that previous years are reworked using the new thresholds to determine the size of a company. Where the results for a company fluctuate, this may require going back a number of years to determine the new size.

Other considerations

The regulations also make some amendments to director report requirements with the aim of removing requirements which are duplicated, superseded or provide low value disclosures.